Did they jack up your credit card interest rates too?
You had a great relationship and affection for your credit card. You even had scored hotel and airline points every time you made a purchase. Now, you’ve just received a notification that your credit card’s interest rate is going up. What can you do?
Mercifully, under the new federal credit card regulations, you can opt out of any credit card account if the proposed interest rate and fee hikes are too pricey for you.
However, before you take any rash actions, like canceling, you should know the rules and financial implications of cancellation, as well as what your options are.
First out, card issuers must give you 45 days notice before raising credit card interest rates or fees, such as annual, balance-transfer, and late fees. If you don’t like the new terms, you can close the account during that time.
However, the game can be played differently by the card issuers if you do try to close your account. They generally don’t have to give you 45 days notice before lowering your credit limit or canceling your card. So if you query the new interest rate aggressively, they may just cancel the card, which may not be the best outcome if you have a balance and it may also negatively affect your credit score.
If your card is canceled, Consumer’s Union suggests you ask the credit card issuer for the reason and then pay down balances as much as possible to maintain a low credit usage percentage and protect your credit score.
Implications of Closing Your Account
If you close your account, it is not viewed as a default but could still impact your credit score negatively by increasing your credit usage percentage, a factor used to determine your score.
Your credit usage percentage, is the debt you carry divided by the amount of your available credit. Closing a credit card account lowers your available credit, thereby increasing your credit usage percentage.
To avoid this outcome, seek out better credit card deals and obtain a new card before closing an account, or quickly pay off your outstanding balances.
If you close your account you won’t have to pay off the entire balance at once but the issuer could increase your minimum monthly payment. The credit card company must give you at least five years to repay or it can charge a minimum monthly payment that is no greater than twice the balance percentage of the old minimum monthly payment.
For example, if your old minimum monthly payment was 2.5% of the balance, the new monthly minimum payment can be no more than 5% percent of the balance.
Last, remember that if you normally pay off all balances each month, you can choose to keep the card if you like it and perhaps earn points with hotels, airlines or retail stores. In this case, the interest rates won’t matter to you.
Recent Comments